ARMCO Q3 2018 QC Trends Report: Defect Trends Reflect Lower Volume, Hyper-Competitive Market. The latest report covers the third quarter (Q3) of 2018, and provides loan quality findings for mortgages reviewed by ACES Audit Technology™.

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2. Message from ARMCO President
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“Q3 2018 reveals lenders’ reactions to the previous quarters’ market
contraction—along with their results and repercussions. A high percentage of
defects overall and strong swings in defect distribution based on loan type
demonstrate the typical challenges lenders face as the result of downsizing,
loosening guidelines and aggressive loan placement.”
- Phil McCall, President of ACES Risk Management

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Summary of Findings
The leading critical defect categories for Q3 2018 were (1) Loan Package Documentation, (2) Credit and (3)
Income/Employment. Purchase transactions continued to overshadow refinances in Q3 2018, comprising
77.17% of all transactions reviewed.
Q3 2018 report highlights include the following findings:
 The critical defect rate reached 1.89%, its second highest level since the TRID rule went into effect in October 2015,
increasing roughly 11% from the previous quarter’s rate of 1.71%.
 Critical defects attributed to Loan Package Documentation spiked nearly 23% over the previous quarter, making Q3 2018
the fourth consecutive quarter to see a significant increase in this category.
 The number of defects attributed to Income/Employment dropped almost in half, from 22.73% in the previous quarter to
12.50%.
 FHA loans accounted for a disproportionate number of critical defects, comprising 28.20% of originated loans in the
benchmark, but accounting for 49.55% of loans with critical defects.

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4
Critical Defect Rate by Quarter: Q3 2018

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5
Critical Defects by Fannie Mae Category: Q3 2018

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6
Critical Defects by Fannie Mae Category:
Q2 2018 vs. Q3 2018

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Q3 2018
Loans Reviewed &
Critical Defects
by Loan Type

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Q3 2018
Critical Defects
as a Percentage of
All Loan Types

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The ARMCO Mortgage QC Industry Trends Report represents a nationwide post-closing quality control analysis using
data and findings derived from mortgage lenders utilizing the ACES Analytics benchmarking software.
Each report provides an in-depth analysis of residential mortgage critical defects as reported during post-closing quality
control audits. Data presented comprises net critical defects and is categorized in accordance with the Fannie Mae loan
defect taxonomy.
The ARMCO Mortgage QC Industry Trends Report is available free of charge.
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